2. Developing a Personnel System

The small business owner should base the firm’s personnel policies on explicit, well-proven principles. Small businesses that follow these principles have higher performance and growth rates than those that do not follow them. The most important of these principles are

All positions should be filled with people who are both willing and able to do the job.

The more accurate and realistic the specifications of and skill requirements for each job, the more likely it is that workers will be matched to the right job and, therefore, be more competent in that job.

A written job description and definition are the keys to communicating job expectations to people. Do the best job you can! is terrible job guidance.

Employees chosen on the basis of the best person available are more effective than those chosen on the basis of friendship or expediency.

If specific job expectations are clearly spelled out, and if performance appraisals are based on these expectations, performance is higher. Also, employee training results in higher performance if it is based on measurable learning objectives.

The first step in assessing personnel needs for the small business is to conduct an audit of future personnel needs. Ask yourself

Can the workload you visualize be accomplished by the present work force? Will more or fewer employees be needed? Consider seasonal patterns of demand and probable turnover rates.

Can any jobs be eliminated to free people for other work? What balance of full-time or part-time, temporary or permanent, hourly or salaried personnel do you need?

What does the labor supply look like in the future?

Will you be able to fill some of the jobs you’ve identified? How easily?

What qualifications are needed in your personnel?

Develop a method to forecast labor demand based on your answers to these questions. Once your needs are estimated, determine strategies to meet them.

The process of selecting a competent person for each position is best accomplished through a systematic definition of the requirements for each job, including the skills, knowledge and other qualifications that employees must possess to perform each task. To guarantee that personnel needs are adequately specified, (1) conduct a job analysis, (2) develop a written job description and (3) prepare a job specification.

Job Analysis

Job analysis is a systematic investigation that collects all information pertinent to each task performed by an employee. From this analysis, you identify the skills, knowledge and abilities required of that employee, and determine the duties, responsibilities and requirements of each job. Job analysis should provide information such as

Job title.

Department.

Supervision required.

Job description-major and implied duties and responsibilities.

Unique characteristics of the job including location and physical setting.

The job analysis is used to generate a job description, which defines the duties of each task, and other responsibilities of the position. The description covers the various task requirements, such as mental or physical activities; working conditions and job hazards. The approximate percentage of time the employee should spend on each activity is also specified. Job descriptions focus on the what, why, where and how of the job.

There is an excellent resource the small business owner can use to develop job descriptions, ask employees themselves to describe their jobs. A good employee may know more about the job than anyone else.

Job Specification

The job specification describes the person expected to fill a job. It details the knowledge (both educational and experiential), qualities, skills and abilities needed to perform the job satisfactorily. The job specification provides a standard against which to measure how well an applicant matches a job opening and should be used as the basis for recruiting.

Recruiting

As a small business owner-manager, you should be aware of the legal environment in which you operate. This is especially true when it comes to recruitment. Being aware of legislation that will affect your business is extremely important to efficient recruiting.

Sources of Employees

Effective recruiting requires that you know where and how to obtain qualified applicants. It is difficult to generalize about the best source for each business, but a description of the major sources follows.

Present employees – Promotion from within tends to keep employee morale high. Whenever possible, current employees should be given first consideration for any job openings. This practice signals your support of current employees.

Unsolicited applicants – Small businesses receive many unsolicited applications from qualified and unqualified individuals. The former should be kept on file for future reference. Good business practice suggests that all applicants be treated courteously whether or not they are offered jobs.

Schools – High schools, trade schools, vocational schools, colleges and universities are sources for certain types of employees, especially if prior work experience is not a major factor in the job specification. Schools also are excellent sources for part-time employees.

Private employment agencies – These firms provide a service for employers and applicants by matching people to jobs in exchange for a fee. Some fees are paid by the applicants, and there is no cost to the employer; for highly qualified applicants in short supply, the employer sometimes pays the fee.

Employee referrals – References by current employees may provide excellent prospects for the business. Evidence suggests that current employees hesitate to recommend applicants with below average ability. Word of mouth is one of the most commonly used recruiting sources in the small business community.

“Help Wanted” advertising – Letting people know that the business is hiring is a key element in gaining access to the pool of potential employees. At its simplest, this type of advertising may take the form of a Help Wanted sign in the window. More sophisticated methods involve using local media, primarily print sources such as daily and weekly newspapers. The classified pages of newspapers are frequently consulted by active job seekers, including currently employed individuals who may be tempted by a more attractive position. Other advertising media include radio and television. These tend to have a wider appeal than the newspaper; however, the price of an advertisement is correspondingly higher.

Specialty media publications, such as trade association magazines and newsletters, may also produce quality job applicants. There are efforts in some parts of the country to offer small business employers access to cable television community bulletin boards. Another high-tech opportunity is to list positions on computer network bulletin boards.

Prices for help wanted advertising vary and the small business owner approaches them with caution. A well-placed, high-quality advertisement will attract good people, whereas, an expensive advertisement in the wrong medium may get no results. Some experimentation is worthwhile to most small businesses. Another suggestion is to ask other small business people in the area about their success with help wanted advertising. Learn from others’ successes and mistakes.

Screening

The screening process provides information about an individual’s skills, knowledge and attitudes, enabling a potential employer to determine whether that person is suited to, and qualified for, the position. Experience has shown that hiring an overqualified person can be as harmful as hiring an under qualified person.

The application form is the place to begin screening candidates for a job. It provides information on the person’s background and training and is the first means of comparing the applicant with the job description. This will ensure that you don’t waste time on applicants who clearly do not meet the minimum requirements for the job.

Generally, the following information is asked on an employment application form: name, address, telephone number, social security number, kind of work desired, work experience, military service, education and references.

The personal interview is the second step in the screening process. During the interview, the manager learns more about the applicant through face-to-face contact, including observation of personal appearance. The interview should be guided, but not dominated, by the manager as it is important to let the candidate speak freely. Whenever possible, the interviewer should ask questions that are directly related to the job. Devise a list of questions that will adequately assess the applicant’s qualifications while meeting the specifications for the job. Three major errors often committed in the personal interview are:

Failure to analyze the requirements of the job in sufficient detail to generate valid questions.

Failure to ask candidates the right questions to determine their strengths and weaknesses, and their fit with the job.

Too much reliance on gut reaction instead of objective evaluation of candidates based on criteria established in the job specification.

Interviewing makes the selection process more personal and gives the interviewer an overall idea of whether the applicant is appropriate for the job. The following list of techniques will help you select the right applicant for the job:

Review the job description before the interview.

Break the ice – establish a friendly atmosphere.

Develop an interview time plan and stick to it.

Keep an open mind, i.e., don’t form an opinion too early.

Give the candidate time to tell his or her story; don’t talk too much.

Present a truthful picture of the company and the job.

Listen carefully, concentrate and take notes.

Avoid detailed discussion of salary too early in the interview.

Be courteous.

Don’t leave the candidate hanging – discuss the next step in the hiring process and the timing.

Other screening techniques include employment tests and physical examinations. Some employment tests measure aptitude, achievement, intelligence, personality and honesty. A physical examination determines if the applicant meets the health standards and physical demands of the job.

Selecting and Hiring

If the screening process is thorough, selecting the best applicants for the job is easy. However, before making the final selection, one last step should be taken: the top candidate’s references should be checked for accuracy and input. You should be aware of the tendency of references to give a rose-colored picture of applicant’s character and ability. Despite this potential bias, a careful check with former employers, schools and other references can be most constructive. At a minimum, checking can determine whether or not the applicant was truthful about his or her employment history.

Orienting New Employees to Your Business

An employee handbook communicates important information about the company to the employee. The handbook should cover topics such as company expectations, pay policies, working conditions, fringe benefits and the company philosophy toward customers.

Once an individual is hired, he or she should receive a comprehensive orientation on the general policies of the company and on the specific nature of the job. Rules should be explained in detail, job expectations agreed upon and any questions answered before the new employee begins work. New employees should be introduced to other employees and made to feel welcome.

Direct Compensation – Wages and salaries are the compensation people receive on a regular basis (monthly, biweekly or weekly). Workers are paid on the basis of time (by the hour, day, week or month) or on the basis of output (an incentive plan).

Indirect Compensation – Fringe benefits are an important part of the overall compensation package in most small businesses. Employee benefits now account for about 40 percent of payroll costs. The profitability of the small firm is one of the primary determinants of what benefits are offered by the firm.

One successful approach to providing benefits to employees of a small business is to allocate a certain amount of money per employee for benefits. Each employee then chooses the package of benefits that suits his or her current needs. This approach is called cafeteria planning because it is similar to going down a cafeteria line, where each customer chooses what he or she wants to eat. It has been suggested that employees perceive this approach as highly equitable because it (1) allows freedom of choice and (2) does not impose a single package of benefits on all employees.

For example, a young employee with several small children may be interested in dental insurance for his family. He is not really interested in or motivated by a pension plan at this time in his life. Another employee in this same company is in her late forties, has no dependent children and is planning for retirement. To force the same benefit on these two employees is not an effective use of benefit money. To allow some choice on the part of participants is a major advantage of the cafeteria approach to benefit planning.

Small businesses face difficult challenges when they try to match benefits with big firms. Nevertheless, the small firm can enjoy the benefits of greater flexibility and innovativeness by offering a cafeteria plan.

This Personnel Management article was written by YoungEntrepreneur.com on 3/1/2005

This article is used with the permission of YoungEntrepreneur.com. Visit them online to learn business, read profiles of entrepreneurs, and participate in community forums.

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